MARVION INC. This discussion summarizes the significant factors affecting the operating results, financial condition, liquidity and cash flows of the Company and its subsidiary for the fiscal years endedDecember 31, 2022 and 2021. The discussion and analysis that follows should be read together with the section entitled "Cautionary Note Concerning Forward-Looking Statements" and our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this annual report on Form 10-K. Except for historical information, the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the Company's control. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by
us in this report.
Currency and exchange rate
Unless otherwise noted, all currency figures quoted as "U.S. dollars", "dollars" or "US$" refer to the legal currency ofthe United States . References to "Hong Kong Dollar" are to the Hong Kong Dollar, the legal currency of theHong Kong Special Administrative Region ofthe People's Republic of China . Throughout this report, assets and liabilities of the Company's subsidiaries are translated intoU.S. dollars using the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders' equity.
We are not required to obtain permission from the Chinese authorities to operate or to issue securities to foreign investors.
We, through our subsidiaries are currently engaged in the rendering of marketing
and strategic advisory services and also offer financing and business
development solutions as well as related professional services such as assisting
clients in meeting regulatory and best practices requirements. With the recent
boom of the Non-Fungible Tokens (NFTs) sector, we expect to assist technology
companies in meeting regulatory and legal requirements while setting up and
offering digital ownership tokens ("DOT") products and services in Hong Kong .
Forward-Looking Statements
Statements in the following discussion and throughout this registration
statement that are not historical in nature are "forward-looking statements."
You can identify forward-looking statements by the use of words such as
"expect," "anticipate," "estimate," "may," "will," "should," "intend,"
"believe," and similar expressions. Although we believe the expectations
reflected in these forward-looking statements are reasonable, such statements
are inherently subject to risk and we can give no assurances that our
expectations will prove to be correct. Actual results could differ from those
described in this registration statement because of numerous factors, many of
which are beyond our control. These factors include, without limitation, those
described under Item 1A "Risk Factors." We undertake no obligation to update
these forward-looking statements to reflect events or circumstances after the
date of this registration statement or to reflect actual outcomes. Please see
"Forward Looking Statements" at the beginning of this Form 10.
The following discussion of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and the
related notes thereto and other financial information appearing elsewhere in
this Form 10.
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Overview
We are not required to obtain permission from the Chinese authorities to operate or to issue securities to foreign investors.
We are at a development stage company and reported a net loss of$10,047,662 and$2,121,074 for the years endedDecember 31, 2022 and 2021, respectively. We had current assets of$4,554,319 and current liabilities of$6,823,919 as ofDecember 31, 2022 . As ofDecember 31, 2021 , our current assets and current liabilities were$143,732 and$2,407,792 , respectively. Our financial statements for the years endedDecember 31, 2022 and 2021 have been prepared assuming that we will continue as a going concern. Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our stockholders. Our sources of capital in the past have included the sale of equity securities, which include common stock sold in private transactions and public offerings, capital leases and short-term and long-term debts. Results of Operations.
Comparison of the fiscal years ended
The following table sets forth certain operational data for the years indicated:
Fiscal Years Ended December 31,
2022 2021
Revenues: -
Media & entertainment segment
24,743 201,137
Total revenue 11,482,606 297,092
Cost of revenue:
Media & entertainment segment (8,669,404 ) (14,035) Consulting business segment (25,541 ) (73,788 ) Total cost of revenue (8,694,945 ) (87,823 ) Gross profit 2,787,661 209,269 Operating expenses: Sales and marketing (784,133 ) (185,363 ) Technology and development (9,004,045 ) (124,148 ) Corporate development (285,361 ) (680,000 )
Impairment loss on digital assets (4,076 ) (1,640 ) General and administrative expenses (2,743,432 ) (1,334,066 ) Loss from operation (10,033,386 ) (2,115,948 ) Other income (expense), net (18,097 ) - Loss before income taxes (10,051,483 ) (2,115,948 ) Income tax credit (expense) 3,821 (5,126 ) Net loss$ (10,047,662 ) $ (2,121,074 ) 39 Revenue
For the year ended
During the year ended
Year ended December 31, 2021 December 31, 2021
Percentage Accounts
Customer Revenues of revenues receivable
Axiom Global HK Limited $ 100,950 34% $ -
Video Commerce Group Limited 100,187 34% -
Total: $ 201,137 68% Total: $ -
For the year ended December 31, 2022 , our revenue from media and entertainment
segment increased by $11,361,908 , The increase was primarily due to an increase
in revenue of (i) $11,244,500 from our movie remake license Digital Ownership
Tokens, and (ii) $83,029 from our Forensic Psychologist Hybrid Digital Ownership
Tokens.
Cost of Revenue
Cost of revenues of $8,694,945 for the year ended December 31, 2022 consisted
primarily of the cost of intellectual property licenses and amortization on
licensed media content. The amortization cost incurred in relation to the
licensed media content of Forensic Psychologist was $47,628 . Cost of revenues
increased by $8,607,122 from $87,823 in the same period of 2021 which was mainly
due to the increase in sales of our movie remake license Digital Ownership
Tokens. As a result of the termination of service prior to completion, a gross
loss was incurred on the consulting business segment. Cost of revenue of
approximately $87,823 for the year ended December 31, 2021 consisted primarily
of amortization on licensed media content, token minting cost and consultancy
fee.
Gross Profit
We achieved a gross profit of
Sales and Marketing Expenses
Sales and marketing expenses increased by$598,770 for the year endedDecember 31, 2022 , as compared to the prior year period, due primarily to increase in (i) non-cash consultancy expenses charged by consultants for marketing events forMedia and Entertainment segment, (ii) management service fee charged by a related company owned by the major shareholder of the Company, and (iii) marketing expenses for social media marketing. Sales and marketing expenses of$185,363 for the year endedDecember 31, 2021 primarily include costs related to public relations, advertising and marketing programs, and personnel-related expenses. 40
Technology and Development Expenses
Technology and development expenses increased by$8,879,897 for the year endedDecember 31, 2022 , as compared to prior year period, due primarily to increase in (i) development costs for metaverse and artificial intelligence engine charged by a related company owned by the major shareholder of the Company, (ii) management service fee charged by a related company owned by the major shareholder of the Company, (iii) costs for the digital ownership token ("DOT") development and improvement, and (iv) non-cash consultancy expenses charged by consultants for technology development for blockchain forMedia and Entertainment segment. Technology and development expenses of$124,148 for the year endedDecember 31, 2021 include personnel-related expenses incurred in operating, maintaining and enhancing our websites and platform, and costs incurred in developing new website and ecommerce platform.
Corporate Development Expenses
Corporate development expenses of
General and Administrative Expenses ("G&A")
General and administrative expenses increased by$1,331,366 , to$2,743,432 for the year endedDecember 31, 2022 , as compared to the prior year period, due primarily to increase in (i) management service fee charged by a related company owned by the major shareholder of the Company, (ii) non-cash consultancy expenses charged by consultants for rendered in general and administrative function forMedia and Entertainment segment, including legal, finance, executive and other support operations, and (iii) directors' remuneration charged by the director and former director of the Company. General and administrative expenses of$1,334,066 for the years endedDecember 31, 2021 . These expenses primarily include consulting fees, personnel related expenses, as well as costs incurred on other professional fees incurred in connection with general operations of the Company. Income Tax Expense
We incurred income tax credit of
We incurred income tax expense of
Liquidity and Capital Resources
The following summarizes the key component of our cash flows for the years endedDecember 31, 2022 and 2021. Years endedDecember 31, 2022 2021
Net cash used in operating activities
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For the year endedDecember 31, 2022 , net cash provided by operating activities was$1,186,668 , which consisted primarily of a net loss of$10,047,662 , an increase in prepaid expenses and other current assets of$3,037,874 , and a decrease in income tax payable of$3,821 , offset by an increase in accrued liabilities and other payables of$57,009 , and an increase in accrued consulting and service fee of$3,099,529 , and adjusted for non-cash items such as amortization of$48,578 , revenue received by digital assets of$2,715,029 , expense settled by digital assets of$11,389,972 , digital assets purchased / exchanged of$2 , impairment loss of digital assets of$40,676 , loss on sale, use or exchange of digital assets of$18,556 . For the year endedDecember 31, 2021 , net cash used in operating activities was$98,968 , which consisted primarily of a net loss of$2,121,074 , amortization of$12,332 , digital assets received of$95,955 , loss on impairment of digital assets of$1,640 , increase in digital assets of$4,547 , increase in prepayment and other receivables of$15,456 , increase in accrued liabilities and other payables of 2,118,983 and increase in income tax payable of$5,109 .
For the year ended
For the year ended
Net Cash Provided by Financing Activities
For the year ended
For the year endedDecember 31, 2021 , net cash provided by financing activities was$279,418 , which consisted of advance from directors of$278,529 and advance from related parties of$889 . Working Capital As ofDecember 31, 2022 , we had cash and cash equivalents of$99,274 , digital assets of$10,203 , inventories of$1,387,500 , prepayments and other receivables of$3,057,342 .
As of
We expect to incur significantly greater expenses in the near future as we expand our business or enter into strategic partnerships. We also expect our technology and development, sales and marketing expenses to increase as we enhance our e-commerce platform and spend more efforts in building up customers and community and incur additional costs in investors and partnerships relationship for long-term corporate development. During the year, we did not pay dividends on our Common Stock. Our present policy is to apply cash to investments in product development, acquisitions or expansion; consequently, we do not expect to pay dividends on Common Stock
in the foreseeable future. 42 Going Concern Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our stockholders. Our sources of capital may include the sale of equity securities, which include common stock sold in private transactions, capital leases and short-term and long-term debts. While we believe that we will obtain external financing and the existing shareholders will continue to provide the additional cash to meet our obligations as they become due, there can be no assurance that we will be able to raise such additional capital resources on satisfactory terms. We believe that our current cash and other sources of liquidity discussed below are adequate to support operations for at least the next 12 months. We require additional funding to meet its ongoing obligations and to fund anticipated operating losses. Our auditor has expressed substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on raising capital to fund its initial business plan and ultimately to attain profitable operations. These consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Company not being able to continue as a going concern. We expect to incur marketing and professional and administrative expenses as well expenses associated with maintaining our filings with the Commission. We will require additional funds during this time and will seek to raise the necessary additional capital. If we are unable to obtain additional financing, we may be required to reduce the scope of our business development activities, which could harm our business plans, financial condition and operating results. Additional funding may not be available on favorable terms, if at all. We intend to continue to fund its business by way of equity or debt financing and advances from related parties. Any inability to raise capital as needed would have a material adverse effect on our business, financial condition and results of operations.
If we cannot raise additional funds, we will have to cease business operations. As a result, our common stock investors would lose all of their investment.
Material Cash Requirements We have not achieved profitability since our inception and we expect to continue to incur net losses for the foreseeable future. We expect net cash expended in 2023 to be significantly higher than 2022. As ofDecember 31, 2022 , we had an accumulated deficit of$26,205,029 . Our material cash requirements are highly dependent upon the additional financial support from our major shareholders
in the next 12 - 18 months.
We had no contractual obligations and commercial commitments as of
Off-Balance Sheet Arrangements
We are not party to any off-balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations.
Critical Accounting Policies and Estimates.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted inthe United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our consolidated financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management's subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to consolidated financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe the following accounting policies are critical in the preparation of our consolidated financial statements. 43
Use of estimates and assumptions
In preparing these consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenues and expenses during the years reported. Actual results may differ from these estimates. If actual results significantly differ from the Company's estimates, the Company's financial condition and results of operations could be materially impacted. Significant estimates in the period include the impairment loss on digital assets, valuation and useful lives of intangible assets and deferred tax valuation allowance. Digital assets The Company's digital assets represent the cryptocurrencies held in its e-wallet, including Binance USD, Tether, Binance Coin, Ethereum, Polygon, OKB Token and OEC Token. The Company accounts for its digital assets in accordance withFinancial Accounting Standards Board ("FASB") ASC Topic 350, "General Intangibles Other Than Goodwill" ("ASC 350"). ASC 350 requires assets to be measured based on the fair value of the consideration given or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable. Accordingly, the Company performs an analysis each quarter to identify whether events or changes in circumstances and determines the fair value of its cryptocurrencies based on quoted closing prices on the active exchange on the balance sheet date, if the fair market value is lower than the carrying value an impairment loss equal to the difference will be recognized as "Impairment loss of digital assets" in the unaudited condensed consolidated statement of operations. If the fair market value is higher than the carrying value the basis of the digital assets will not be adjusted to account for this increase. Gains (loss) on sale, use or exchange of digital assets, if any, will be recognized upon sale, use or exchange of the digital assets.
The Company's cryptocurrencies are deemed to have an indefinite useful life; therefore, amounts are not amortized, but rather are assessed for impairment.
Inventories Inventory consists of adaptation rights products, which are stated at the lower of cost (first-in, first-out method) or net realizable value. Management regularly reviews inventory on an item-by-item basis and provides an inventory allowance based on excess or obsolete inventory determined primarily by anticipated future demand for our products. Inventory allowance is measured as the difference between the cost of the inventory and market value, based on assumptions about future demand that are inherently difficult to assess. As ofDecember 31, 2022 and 2021, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs. Intangible assets Intangible assets consist of licensed media content, trademarks and trade name. The intangible assets are amortized following the patterns in which the economic benefits are consumed or straight-line over the estimated useful life. The Company periodically reviews the estimated useful lives of these intangible assets and reviews these assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The determination of impairment is based on estimates of future undiscounted cash flows. If an intangible asset is considered to be impaired, the amount of the impairment will be equal to the excess of the carrying value over the fair value of the asset. There was no impairment of intangible assets identified for the years endedDecember 31, 2022 and 2021. 44 Development costs
The Company enters a technical knowhow license and servicing agreement with a company controlled by its major shareholder and are required to make payments for technical knowhow development. Technical knowhow consists of visual intelligence engine, emotion recognition engine, motion recognition engine, and metaverse development. Prior to establishing technological feasibility of a product, all development costs are charged to expenses as incurred and to be recognized as "Technology and development expenses" in the unaudited condensed consolidated statement of operations. After establishing technological feasibility, the Company capitalizes all development payments to third-party service provider as development costs. Significant management judgements are made in the assessment of when technological feasibility is establishing. Amortization of capitalized development costs commences when a product is available for general release. For capitalized development costs, annual amortization is calculated using the straight-line method over the remaining estimated life of the title. The Company evaluates the future recoverability of capitalized development costs on a quarterly basis. For the years endedDecember 31, 2022 and 2021, the Company incurred the related development costs of$8,000,000 and$0 , respectively. The Company did not capitalize any related development costs during the years endedDecember 31, 2022 and 2021.
Impairment of long-lived assets
In accordance with the provisions of ASC Topic 360, "Impairment or Disposal of Long-Lived Assets", all long-lived assets such as intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. There has been no impairment charge for the years presented.
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial
Accounting Standard Board ("FASB") or other standard setting bodies and adopted
by the Company as of the specified effective date. Unless otherwise discussed,
the Company believes that the impact of recently issued standards that are not
yet effective will not have a material impact on its financial position or
results of operations upon adoption.
In May 2021 , the FASB issued ASU 2021-04, Earnings Per Share (Topic 260),
Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock
Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own
Equity (Subtopic 815-40). ASU 2021-04 clarifies and reduces diversity in an
issuer's accounting for modifications or exchanges of freestanding
equity-classified written call options (for example, warrants) that remain
equity classified after modification or exchange. The ASU provides guidance to
clarify whether an issuer should account for a modification or an exchange of a
freestanding equity-classified written call option that remains equity
classified after modification or exchange as (1) an adjustment to equity and, if
so, the related earnings per share effects, if any, or (2) an expense and, if
so, the manner and pattern of recognition. ASU 2021-04 is effective for annual
beginning after December 15, 2021 , including interim periods within those fiscal
years. Early adoption is permitted, including adoption in an interim period. The
Company is currently evaluating the impact that this standard will have onits financial statements.
InOctober 2021 , the FASB issued guidance which requires companies to apply Topic 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. Public entities must adopt the new guidance for fiscal years beginning afterDecember 15, 2022 and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact and timing of adoption of this guidance
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
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